The seemingly inevitable bankruptcy of General Motors talk of the markets but it seems that the speed at which Chrylser is moving through its bankruptcy proceedings is remarkable. It may emerge from bankruptcy within the next couple of weeks, according to some press reports. This in turn spurs hope that GM, while significantly larger, may also eme…

The US will report April existing home sales tomorrow. Surveys by news wires expect a rise of around 2% following the 3% decline in March. Yet the market may still be a bit more optimistic than the data. Recall that the April housing starts and permits data disappointed and the March CaseShiller headline also was worse than expected. That said, in…

US April Existing Home Sales Preview
Reviewed by magonomics
on
May 26, 2009
Rating: 5

This past Saturday the Fed's Vice Chairman Donald Kohn spoke on a panel at Princeton University. Kohn is also the most experienced person on the FOMC and he also headed up the working committee to help improve the FOMC communication. What he says is particularly important.

Kohn Says Fed Purchases May Have Kept Rates Down 100 bp
Reviewed by magonomics
on
May 26, 2009
Rating: 5

Earlier today the Bank of Japan indicated that it will accept government bonds of the other G5 countries (US, UK, Germany and France) as collateral for their money market operations. The immediate reaction was that this will help enhance liquidity conditions on ideas that Japanese banks will be able to use their foreign bond holdings as collateral…

In the near-term, the stars are aligned against the US dollar. Sentiment is decidedly negative. If the news stream is good, we are told investors are less risk averse and do not need the dollar’s security. If the news stream is poor, we are told the US is in horrific shape and the budget deficit and Fed’s balance sheet will swell even more. It is …

Questioning the Dollar
Reviewed by magonomics
on
May 22, 2009
Rating: 5

Sterling fell around two cents in response to the S&P cut in the UK's sovereign outlook from stable to negative due to its rising debt as a percentage of GDP. However, the real take away does not seem to be sterling's hit, but its relatively quick recovery. Consistent with the other major European currencies, the pullbacks have been br…

The dollar has been thumped here today. There does not appear to be a key event. The drop in the dollar appears to be more a type of capitulation. Many, like ourselves have expected a pullback in foreign currencies, but the pullbacks have been shallow, as have been the dips in the equity market. The price action alone forced various market partici…

The Canadian dollar made new highs for the year a week ago and has been consolidating since. Yesterday's US dollar bounce carried it through the first technical corrective target near CAD1.1780 initially, but then fell through the pre-weekend lows to record an outside down day and there has been follow through today. Look for a near-term retes…

Canadian Dollar Driver: Commodities or Interest Rates?
Reviewed by magonomics
on
May 19, 2009
Rating: 5

Brazil's state visit to China has set the chins wagging. Will an agreement be struck to invoice their bilateral trade in their own currencies rather than the dollar ? Brazilian President Lula had made some allusions to this last month around the G20 meeting.

China/Brazil to Ditch US Dollar: Hardly
Reviewed by magonomics
on
May 19, 2009
Rating: 5

Brazilian President Lula is in China today hoping to secure new investment commitments. Many observers appear to have mistaken verbal commitments with actual funds, but Brazilian officials don't. In 2005, many cited China's $7 bln investment pledge to Brazil as a sign of the expansion of the PRC's influence and its help to developing c…

Brazil to China: Show us the Money
Reviewed by magonomics
on
May 18, 2009
Rating: 5

Copper prices were among the first of the industrial raw materials to bottom. Some investors and economists regard copper as a leading economic indicator even though they are aware of the increase role for fiber optic cables and other substitutes for what some call "red gold". Copper's low was set on Xmas eve and since then has been …

Copper and Currencies
Reviewed by magonomics
on
May 18, 2009
Rating: 5

If it looks like a duck, walks like a duck, and quacks like a duck, it must be a duck. Yet the European Central Bank says it is not a duck. Perhaps it is a platypus. At its most basic level, quantitative easing refers to central banks using tools other than interest rates to make monetary conditions more accommodative. The ECB has expanded its bala…

The ECB may have agreed in principle to purchase covered bonds, but it has no appetite to accept local currency sovereign bonds from eastern and central Europe as collateral. Reuters reports that the ECB has formally rejected the request of “several” central European central banks to accept non-eurozone local currency bonds for collateral. The Dep…

ECB Says No to CEE Bonds as Collateral
Reviewed by magonomics
on
May 14, 2009
Rating: 5

The benchmark three-month LIBOR continues to fall. Since last Friday, it has fallen by about 8 bp, more than in the whole month of March. In April, three-month libor fell about 20 bp and thus far this month it has fallen another 16 and counting. The LIBOR-OIS spread has also fallen sharply. It fell 9 bp today to bring this week's decline to 17…

What's Up (Down) with Libor?
Reviewed by magonomics
on
May 14, 2009
Rating: 5

We keep a watchful eye on correlations between various currencies and othermarkets, including equities, commodities, and Treasuries. Although it may feel like some of these inter-market relationships are breaking down, a review of some recent correlations suggest otherwise. Believing it is the most rigorous approach, these correlations are run on …

Shifting Drivers in FX
Reviewed by magonomics
on
May 13, 2009
Rating: 5

The Mexican peso is under pressure following the disappointing US retail sales. The US dollar is at its best level against the peso since May 4th when the anxiety over the swine flu broke. The central bank meets at the end of the of the week and a large rate cut is likely.

Disappointing U.S. Retain Sales Did to MXN What S&P Failed to Do
Reviewed by magonomics
on
May 13, 2009
Rating: 5

Washington contacts report that there is a bipartisan group in the Congress that is attempting to resurrect legislation that would punish China for not appreciating the yuan faster. The Democrat Senator from Michigan (Stabenow) and the Republican Senator from Kentucky (Bunning) are leading the move in the upper chamber. They will reportedly meet to…

Bipartisan Support in US Congress to Play with Fire
Reviewed by magonomics
on
May 12, 2009
Rating: 5

Old men should know that playing with fire is dangerous. Yet that is precisely what they have done. Many have argued that the large US external imbalance was a major risk to the world economy. The previous solution was for the US to boost domestic savings, for Europe and Japan to make structural reforms to boost domestic demand, and for Asia to ad…

The European Central Bank seems to surprise the market once a year. Last July the ECB surprised the market and arguably common sense when it hiked interest rates at the peak in commodities, especially oil, just as the region’s economy and other major industrialized economies were about to fall off a cliff. It appears to have gotten this year’s sur…

Covered Bonds: Back to the Future
Reviewed by magonomics
on
May 11, 2009
Rating: 5

There are two main issues that are worrying investors. The first is the future of the dollar as the numeraire—the key metric in the world economy. Recent Special FX pieces have argued that this concern is misplaced. The dollar’s share of reported reserves remains fairly stable. Its use as an invoicing currency remains pervasive. Numerous commoditi…

US Inflation: Where and When
Reviewed by magonomics
on
May 01, 2009
Rating: 5